Commercial mortgage-backed securities delinquency rates have climbed to levels not seen in over four years, causing significant concern among investors and market participants. The CMBS delinquency rate reached 7.13 percent in June 2025, marking the first time the overall rate has cleared the 7 percent threshold since January 2021. This surge marks a dramatic shift from the relatively stable conditions of recent years.
The current delinquency spike impacts property types differently, with office properties facing the most distress. Office CMBS delinquencies have reached record highs, climbing to 11.08 percent and surpassing previous peaks. Multifamily and lodging sectors have also shown notable volatility, though their trends differ from the ongoing challenges in the office sector.
Several factors drive these elevated delinquency rates. These factors go beyond simple market corrections, involving interactions between property fundamentals, financing conditions, and broader economic pressures that vary across commercial real estate sectors.
Key Takeaways
- CMBS delinquency rates have surged to 7.13 percent, the highest level since January 2021
- Office properties are experiencing the most severe distress with record-high delinquency rates of 11.08 percent
- Delinquency patterns vary significantly across property types, with multifamily and lodging showing different volatility trends than office properties
Understanding the CMBS Delinquency Rate
The CMBS delinquency rate shows the percentage of commercial mortgage-backed securities loans that are behind on payments. You calculate it by dividing delinquent loan balances by total outstanding balances. Property-specific factors like debt service coverage ratios and broader market conditions affect delinquency patterns, with office properties currently showing the highest distress.
Definition and Calculation of the Delinquency Rate
The CMBS delinquency rate represents the portion of commercial mortgage-backed securities loans that are 30 days or more past due on their payments. You calculate this rate by dividing the total dollar amount of delinquent loans by the total outstanding loan balance.
For example, if $42.3 billion in CMBS loans are delinquent out of a total $593.4 billion outstanding, the delinquency rate equals 7.13 percent. This matches the June 2025 CMBS delinquency rate reported by Trepp.
Key components included in delinquency calculations:
- Loans 30+ days past due on interest payments
- Loans in foreclosure proceedings
- Real estate owned (REO) properties
Some analysts also track an expanded delinquency rate that includes loans beyond their maturity date but current on interest payments. This broader measure reached 8.71 percent in June 2025, compared to the standard rate of 7.13 percent.
Key Drivers Influencing Delinquencies
Market fundamentals drive CMBS delinquencies, and property cash flow serves as the most critical factor. When rental income drops below debt service requirements, borrowers struggle to make loan payments.
Economic conditions affect delinquency rates across property types. Rising interest rates increase refinancing costs for maturing loans. Inflation raises operating expenses while tenant demand weakens in some sectors.
Primary delinquency drivers include:
- Declining occupancy rates – Reduced rental income
- Rising operating costs – Higher utilities, taxes, maintenance
- Market oversupply – Increased competition for tenants
- Interest rate environment – Refinancing challenges
Property management quality also affects delinquency risk. Well-managed properties keep higher occupancy and tenant retention rates. Poor management leads to deferred maintenance and higher tenant turnover.
Geographic concentration adds risk. Markets with diverse economies usually show more resilient performance than areas dependent on a single industry.
Role of Debt Service Coverage Ratio
Debt service coverage ratio (DSCR) shows a property’s ability to generate enough cash flow to cover loan payments. You calculate DSCR by dividing net operating income by annual debt service.
Properties with DSCR below 1.0 don’t generate enough income to cover debt payments, which creates high delinquency risk. Most CMBS loans require a minimum DSCR of 1.20 to 1.25 at origination.
DSCR thresholds and risk levels:
- Above 1.25 – Low delinquency risk
- 1.00 to 1.25 – Moderate risk
- Below 1.00 – High delinquency probability
Market stress reduces property income while debt service stays fixed. Office properties face particular DSCR pressure as remote work reduces tenant demand.
Lenders often modify loans to improve DSCR through payment deferrals or interest rate changes. These modifications may only delay delinquencies if property fundamentals don’t improve.
Trends in Delinquency by Property Type
Office properties show the highest delinquency rates, with the office CMBS delinquency rate reaching a record 11.08 percent in June 2025. This represents a 49 basis point increase from the previous month.
Multifamily delinquencies have surged over the past year. The multifamily CMBS delinquency rates increased before pulling back 20 basis points in June 2025.
Current delinquency rates by property type:
- Office: 11.08% (record high)
- Lodging: 6.81% (volatile recent performance)
- Multifamily: Declined in June after recent increases
- Retail: Lower than office and lodging
- Industrial: Lowest delinquency rates
Lodging delinquencies remain volatile, rising 42 basis points to 6.81 percent in June after dropping nearly 150 basis points in May. This reflects changing travel patterns and seasonal demand shifts.
Industrial properties usually have the lowest delinquency rates due to strong e-commerce demand and limited new supply in many markets.
Current CMBS Delinquency Market and Sector Analysis
The CMBS delinquency market shows significant sector-specific variations. Office properties experience unprecedented stress, while multifamily assets show more stability. Rising interest rates and upcoming loan maturities add pressure across all property types.
Office Sector Delinquencies and Market Forces
The office sector faces the most severe delinquency challenges in the current CMBS market. Office CMBS delinquencies reached record high levels in June, marking a troubling milestone for commercial real estate investors.
Key office sector stressors include:
- Remote work adoption reducing tenant demand
- Declining occupancy rates across major markets
- Class B and C properties experiencing highest default rates
- Urban markets showing greater vulnerability than suburban locations
Older office buildings with shorter lease terms face particular challenges. Many borrowers struggle to refinance as property values fall and cash flows shrink.
The gap between current market values and existing loan balances causes substantial equity losses. Many property owners choose strategic defaults instead of adding more capital.
Multifamily and Lodging Performance
Multifamily properties keep lower delinquency rates than office assets, though some submarkets show stress. Luxury multifamily developments in oversupplied markets face more challenges than workforce housing.
Multifamily performance factors:
- Affordable housing segments showing resilience
- High-end developments experiencing rent growth slowdowns
- Geographic variations with Sunbelt markets outperforming coastal areas
Lodging properties show mixed results depending on location and property type. Business travel recovery remains incomplete, so hotels in central business districts struggle more than leisure-focused properties.
Resort and vacation rental markets perform better. Limited-service hotels in secondary markets still face occupancy and rate pressures.
Impact of Interest Rates and Loan Maturities
Rising interest rates affect your CMBS investments through refinancing challenges and debt service coverage pressures. Properties that performed well at 3% rates now face difficulties refinancing at 6-7% rates.
Critical refinancing timeline:
- 2025-2027: $200+ billion in CMBS loans maturing
- 2026: Peak maturity year for loans originated during low-rate period
- Extended workout periods becoming more common
Lenders now prefer loan modifications and extensions over foreclosures, aiming to maintain cash flow and avoid immediate losses from distressed sales.
Morningstar DBRS and other rating agencies have started using higher base case interest rate assumptions in their analysis. This change reflects the reality of ongoing higher borrowing costs affecting property values and refinancing ability.
Frequently Asked Questions
CMBS delinquency rates depend on several factors, including economic conditions, property performance, and market-specific variables that affect payment defaults across various commercial real estate sectors.
What factors contribute to the fluctuation of CMBS delinquency rates?
Property cash flow performance plays a major role in meeting debt obligations. When rental income drops or operating expenses rise, default risk increases. Interest rate changes can make refinancing more difficult, and higher market vacancy rates reduce rental income and increase delinquency risk. Property management quality also matters, as poor management can raise costs and lower net operating income.
How do economic downturns affect CMBS delinquency rates?
Recessions usually cause CMBS delinquency rates to rise by 200-400 basis points. Tenants may default on leases due to reduced demand, and unemployment spikes lower consumer spending, especially impacting retail and hospitality properties. Credit becomes harder to obtain, and property values may drop, sometimes leaving loans underwater.
What are the implications of rising CMBS delinquency rates for the real estate market?
Rising delinquency rates often lead to more distressed property sales, creating acquisition opportunities when lenders foreclose. CMBS pricing can become more volatile, raising borrowing costs as investors seek higher returns. Lenders respond by tightening underwriting standards, and large institutions may reduce their CMBS investments, making commercial real estate financing less accessible.
How does the CMBS delinquency rate for multifamily properties compare with other property types?
Multifamily properties usually have lower delinquency rates than retail or office properties because residential income tends to be more stable during economic shifts. Retail CMBS loans often show the highest delinquency rates due to changes in shopping habits, while office properties saw increased delinquencies after 2020. Industrial properties generally maintain low delinquency rates thanks to strong demand from e-commerce.
What trends have been observed in the CMBS delinquency rates over the past decade?
From 2012 to 2019, CMBS delinquency rates fell to historic lows of around 2-3% as the economy grew and interest rates stayed low. Retail and office delinquencies spiked between 2020 and 2022, while multifamily delinquencies stayed fairly steady. Regional differences became more noticeable after 2020, with property location playing a bigger role in delinquency risk.
How do current CMBS delinquency rates compare to historical averages?
Current overall CMBS delinquency rates hover around 4-6%, which is higher than the long-term average of 3-4%. Your market faces more stress compared to pre-2020 conditions.
Retail property delinquencies often exceed 8-10% in many markets, which is much higher than in the past. Your retail investments face challenges that go beyond typical market cycles.
Office delinquencies range from 5-12% depending on market and property quality. Your Class A properties in prime locations usually perform better than suburban assets.
Multifamily delinquencies stay close to historical averages of 2-4%. Your residential properties continue to show stability, even with current economic pressures.
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